Vacancy rate is the share of a rental's possible income that is lost because the unit sits empty. In deal analysis you enter it as a percentage of gross rent, and it comes off the top before any expenses. Some investors fold unpaid rent into the same number. For a whole market, it is vacant units divided by total units.
Vacancy rate = rent lost to vacancy ÷ gross potential rent
A house rents for $1,500 a month, so gross potential rent is $18,000 a year. If it sits empty for one month between tenants, you lose $1,500 and the vacancy rate that year is $1,500 ÷ $18,000 = 8.3%. You collect $16,500. If you budget 5% instead, you are planning for $18,000 × 5% = $900 of lost rent, which is about 18 empty days a year.
The most common mistake is entering 0% because the property is rented today. Every tenant leaves eventually, and turnover takes time for cleaning, repairs and showings. Investors commonly start with 5% to 10%, but the right figure depends on your market and property type, so check local rental data. Rent minus vacancy, plus any other income, is your effective gross income. Break-even occupancy tells you how full the property must stay to cover its operating expenses and loan payments.